This article first appeared in The Edge Financial Daily on June 20, 2018

KUALA LUMPUR: Press Metal Aluminium Holdings Bhd said it has seen a spike in sales of more than 10% as a result of US sanctions on Russia’s biggest aluminium producer, United Co Rusal, since April.

“The sanction is being extended until October. It gives Rusal a tough time to sell their products, especially those that are value-added. And financial institutions are not able to facilitate their sales,” Press Metal chief executive officer and co-founder Tan Sri Paul Koon Poh Keong told reporters after the annual general meeting yesterday.

The Russian aluminium giant’s sanctioned status has diverted its customers, especially in Europe, to seek alternative sources for value-added products elsewhere, therefore benefiting companies like Press Metal, he said.

Koon said the effects remain even if the sanctions were to be eventually removed, as customers would still prefer repositioning themselves to avoid possible supply disruptions in the future.

This bodes well for the group’s plans to grow revenue from value-added products to 50% by year end, from 30% last year, he said. He added that the move would help mitigate volatility in raw material costs and yield higher margins.

Koon, however, discounted the fact that by focusing on value-added products, the group has stopped looking at growth opportunities in Sarawak, which include a third smelting plant in Samalaju.

“A third plant in Samalaju is not just our intention to expand, but it also depends on state negotiations and their plans. These are the things that we have planned, but are not just up to us,” he said.

According to Koon, it makes business sense for Australia, which is exempted from US duties besides Argentina, to shift its focus to cater to the US market, therefore leading to reduced market competition and higher premiums in this region. The premium is a surcharge consumers must pay on top of the London Metal Exchange price.

“To some extent, the development has been okay for us. We had a decent start this financial year despite certain headwinds. Our management is closely monitoring the changing market landscape and has control measures in place to respond to price volatilities on both aluminium and raw material fronts. Such external shocks have proven the resilience of aluminium prices, which could benefit producers like us,” he added.

Koon expects aluminium prices to hold steady between US$2,200 (RM8,800) and US$2,300 for the rest of the year.

Meanwhile, Koon said the group is on the hunt for acquisitions as its operations are now running at full capacity. Press Metal’s annual total capacity is 760,000 tonnes, with an extrusion capacity of 160,000 tonnes per annum — the largest in Southeast Asia.

“Our position now is to grow the group inorganically. We have been expanding purely via organic growth in the last seven to eight years,” Koon said. The group kicked off its acquisition trail in February by acquiring alloy rod producer Leader Universal Aluminium Sdn Bhd for RM96 million.

He said Press Metal’s next acquisition target could either be in the upstream or downstream, and most likely abroad.

He noted that the group has various fundraising options available to it and has engaged with international financial institutions for financial assistance when the opportunities arise.

Koon also said the group is working on improving its balance sheet by paring down debts from a net gearing ratio of about 0.8 times (inclusive of trade financing). He added that being in the upstream business allows it to sell on cash, giving the group a healthy cash flow.